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Australian Vintage shining bright amid wine industry gloom

Business

A lack of reliance on exports to China, a booming UK retail market and the “outstanding success” of its new alcohol-free wine range is paying dividends for listed wine company Australian Vintage Limited.

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The Adelaide-headquartered company, which also produces major brands in NSW, this week reported a 127 per cent increase in net profit for the first half of the financial year to $13.3 million.

The result has seen the company’s share price surge to its highest level since 2008.

Australian Vintage’s pillar brands Nepenthe, McGuigan, Barossa Valley Wine Company and Tempus Two grew by 20 per cent during the six-month period to December 31.

This growth took total revenue for the period to $148.4 million, up $10.7 million despite the coronavirus pandemic and Chinese tariffs that have rocked many other major Australian wine industry players.

The UK strengthened its position as Australian Vintage’s biggest wine market with a 10 per cent increase in sales to $65.9 million driven by an 18 per cent increase in sales of the McGuigan brand.

The company has also recently agreed terms to launch its Tempus Two brand into major UK retail, which is expected to further increase sales.

Exports to Ireland, New Zealand, Canada and Europe also showed strong growth.

Australian sales grew by 9 per cent to $51.8 million for the half.

Sales to China for the period fell to $243,000 following the imposition of tariffs of up to 206 per cent on Australian wine in November, down from a relatively modest $1.86 million in the six months to December 2019.

However, sales to other parts of Asia were up 7 per cent to more than $3 million.

In a statement to the Australian Securities Exchange this week, Australian Vintage said COVID-19 had a “mixed impact” on the business with increased retail sales offset by increased production costs and supply chain challenges.

It said the McGuigan Zero range, which launched in late 2019, had been performing above expectation and was a key to overall sales growth in Australia.

“The McGuigan Zero range has been an outstanding success and demonstrates the importance of innovation to the portfolio long term,” the company said in its statement to the ASX on Wednesday.

“Whilst Covid-19 appears to have had an overall positive impact on our business, a significant portion of the growth in our half year result has come from long term sustainable strategies.

“Our cash flow from operating activities of $30.9 million for this half has exceeded any prior cash flows generated in the last 10 years for a full financial year and the company is well on the way to achieving a $40 million operating cash flow for the FY21.”

The company says it remains on target to achieve a full-year net profit after tax of between $18 million and $20 million.

It is also buoyant about the 2021 vintage, which is underway across Australia.

“The 2021 vintage is in process and early indications are that yields will be up on last year’s vintage.”

Australian Vintage’s share price has rallied in recent weeks from $0.57 on February 1 to $0.65 this morning – the company’s highest share price since 2008.

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